Week 5 Assignment

Healthy Body Inc. is a manufacturer of high-quality products designed to help support healthy backs and spines. Their newest product offering is a massage chair. Below is the standard cost structure for the chair:

Standard Cost Sheet: Massage Chair

Metal tubing	5 meters @ $3.50	$17.50
Leather	2 square meters @ $5.00	$10.00
Padding	5 kilograms @$3.50	$17.50
Direct labor	3 hours @ $15	$45.00
Total standard cost		$90.00

This month, Healthy Body Inc. manufactured 500 massage chairs. The following costs were incurred:

Actual Costs Incurred for the Month: Massage Chair

Metal tubing	2,600 meters	$9,360
Leather	1,050 square meters	$5,355
Padding	2,450 kilograms	$9,065
Direct Labor	1,400 hours	$20,860
Total cost		$44,640

Adapted from: Zimmerman, J. L. (2014).Accounting for decision making and control (8^th ed.). New York: NY: McGraw-Hill, "Healing Touch", p. 565.

Suppose you are the senior controller for Healthy Body Inc. and you plan to perform a variance analysis of the massage chairs manufactured to determine if the standards are being met. Once you have completed the analysis, you plan to show it to the production department manager and ask for an explanation of any variances that you believe should be examined.

ANSWERS:

Using the answers on the table below;

• Prepare a memo to your subordinate, using a program like Word.
  • Summarize and analyze the actual costs in relation to the standard costs incurred for the month.
  • Ask for clarification of any variances that need to be investigated.

Be sure to include whether alternatives exist for the future of the organization and explain how the results of the variance analysis might influence those alternatives.

a) Price variance = (actual price - standard price) times quantity bought
	Actual price	Standard price	Quantity bought	Price variance	Favorable or Unfavorable
Metal tubing	3.6	3.5	2600	$260	U
Leather	5	5	1050	$105	U
Padding	3.7	3.5	2450	$490	U
b) Wage rate variance = (Actual wage rate - standard wage rate) times actual hours
	Actual wage rate	Standard wage rate	Actual hours	Wage rate variance	Favorable or Unfavorable
Direct labor	14.9	15	1400	($140)	F
c)Total price variance				$715.00	U
d) Quantity variance =
(actual quantity used in production - standard quantity used in production) times the standard price
	Actual Quantity	Standard Quantity	Standard Price	Quantity variance	Favorable or Unfavorable
Metal tubing	2600	2500	3.5	350	U
Leather	1050	1000	5	250	U
Padding	2450	2500	3.5	-175	F
e) Labor efficiency variance = (actual hours - standard hours) times standard wage
	Actual hours	Standard hours	Standard wage	Efficiency variance	Favorable or Unfavorable
Direct labor	1500	1400	15	-1,500.00	F
f) Total quantity variance			-1,075	F
TOTAL VARIANCES
Metal tubing				610	U
Leather				355	U
Padding				315	U
Direct labor				(1,640)	F
TOTAL				(360)	F